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Furloughs and Perks
From Ezra Klein's online chat this afternoon:
Wokingham UK: It seems that some employers are persuading their workers to take wage cuts, maybe under the guise of long breaks from work. British Airways is pushing that agenda at the moment. Is this way of dealing with the crisis likely to play a big part over the next twelve months?
Ezra Klein: Yep. I'm hearing a lot about unpaid "furloughs," too. Essentially, you can do two things when labor costs are too high. You can fire people are you can cut their compensation.
This is a way of cutting their compensation. And it means that the employment statistics are even worse then they look, because people are getting paid less money.
I too feel like I'm hearing way more about this kind of thing than I have during past recessions. My sister had her 401(k) matching cut. My wife's company is making everyone take furlough days. The Virginia Symphony Orchestra took a month off. Etc. And of course, this is all on top of good old fashioned rising unemployment.
But what's the right metric to measure this? The 401(k) stuff doesn't show up in wage figures but furlough days should, shouldn't they? (Although many of them just end up eating into vacation time, which helps corporate accounting but doesn't affect official wage figures.) Obviously wage freezes show up too. On the other hand, layoffs usually hit the most recently hired workers first, who are also the lowest paid, which makes average wage figures go up even as total wages go down.
So consider this an assignment desk post. Are furloughs and benefit cuts more widespread than they have been in past recessions? What's the best way to measure that? Surely some enterprising economist can answer this.
POSTSCRIPT: Someone also asked Ezra about Matt Taibbi's takedown of Goldman Sachs in the latest issue of Rolling Stone. I finally got around to reading it the other day, and my verdict is simple: it was terrible. Taibbi wrote a terrific article about AIG a couple of months ago, but the Goldman piece was just phoned in, a long series of blustery assertions with essentially nothing to back up any of them. If he wants to claim that Goldman was the wizard behind the curtain of everything from the dotcom boom to last year's oil spike, he really needs to produce some evidence for it instead of just saying so.
POSTSCRIPT 2: I just learned that Rolling Stone didn't actually post Taibbi's article. They only posted a set of excerpts, which is why the online version reads like a long series of blustery assertions with essentially nothing to back up any of them. Unfortunately, unless you read the intro very carefully, it's not clear that these are merely excerpts. Instead, it just seems like a very badly written article.
So: I retract what I said for now. I still suspect that Taibbi is considerably overstating things, trying to construct a dramatic narrative by blaming Goldman for things that are actually sins of the investment community as a whole, but I won't know for sure until I read the entire piece.
For that matter, I have no
For that matter, I have no idea what my "total compensation" is. I know my gross, but not my total cost to my employer. (I'm not talking about my portion of rent and equipment)
Labor stats
Debt. of Labor issues "employer costs of employee compensation", which includes taxes and benefits.
How about federal income tax receipts?
tagged as:- solution
Treasury's Financial Management Service issues daily reports of cash and debt operations, which includes daily, MTD, and YTD line items for withheld income and employment tax deposits (see table IV). It's likely underinclusive to the extent it omits the self-employed and others who derive their income in ways not subject to withholding, but it's probably a good data point to approximate how much the aggregate population is taking home in wages and employment income, and to compare those figures over time. To the extent it diverges from the unemployment figures, you might infer additional cutbacks by employers short of layoffs. (Monthly statements are also available here.)
I teach at a pretty good
I teach at a pretty good small liberal arts college -- probably 40% of our annual budget funding is from endowment draw (on a three-year rolling average). This means that next year is looking awful ("furlough" for everyone -- 2 weeks unpaid for staff, 2% pay cut for faculty, who can't just take weeks off). The (very generous) pension contribution has been cut from 12% to 10% of salary. Lots of other cuts around campus (about 20 staff FTE cut by voluntary separation deals).
The problem is that because of the 3-year rolling average, we're going to continue to be hurt by the lousy endowment performance even after it recovers, if it does. Boy are we a lagging indicator!
taibbi
You're right about Taibbi, Kevin. I've always felt he was a polemicist rather than a journalist. He's a showman and he writes stuff that makes us on the left feel good. He's like a Jonah Goldberg, but cooler. He hits all the right outrage notes, but he clearly allows his thesis to shape his evidence, rather than vice-versa.
Can people really take a
Can people really take a vacation day on a furlough day to maintain their pay? We certainly can't. The point of furlough days at my employer is to reduce labor costs, not increase productivity for a fixed one.
Re Taibbi, I think your
Re Taibbi, I think your criticism just exemplifies the flaw you're supposedly taking issue with - ie, in what way are his assertions unsupported? The article details with a relatively close focus the involvement of GS in promoting and furthering some really ill-advised financial bubbles. If you think Taibbi is wrong about the narrative and is factually incorrect, OK, explain that and discuss, but waving at the article as "terrible" without explaining is just another "blustery assertion," except in this case it's yours.
Furloughs - they fit with management denial
At my company we are being forced to take a one week furlough. If managment had layed people off they would have had to aknowledge the schedules would slip and tasks not get done. This way they can save money while pretending there will be no impact. To paraphrase Jack N., "The truth? They don't want the truth. They can't handle the truth". I am concerned that this seems to be the new American stryle of management.
Taibbi
I read Taibbi's The Great Derangement (or, to be accurate, I read about half of it before I threw it across the room) and found his reportorial techniques to be less than what I would believe to be ethical. His "infiltration" of the Hagee church, pretending to speak in tongues and barf up the Devil (seriously!), in my opinion, was dispicable and I say that bearing in mind the fact that I have no use for Hagee, in particular, or Evangelicals, in general.
While his writing is indeed amusing, to some extent, one ends up feeling somehow dirtied by his sneaking tactics.
On another subject, his so-called rebuttal of the 9/11 "truthers" is little more than a series of ad hominem attacks and sneering wisecracks. Hardly serious reporting.
Taibbi is in danger of becoming another Alexander Cockburn, a tiresome gasbag who apparently simply likes to hear himself talk.
Matt Taibbi
When I read Taibbi's article, I thought, damn those bastards at Goldman! Then I read Kevin's post, and thought hmmmm - maybe Goldman isn't as big a villain as I thought.
I guess I'm just a 2009 version of Zelig - taking on the characteristics (and opinions) of whomever I'm most currently reading.
Damn that Taibbi!
RE: Postscript
You have to have a subscription to the RS website or pick up the dead tree version to read the article in it's entirety. If you want to pan the article at least read the whole thing first.
You know, I am so f-ing
You know, I am so f-ing lucky to work for the company I do -- they're still matching 401(k) plans, have given raises, and are hiring new staff. I really need to be thankful more often for that.
I'm also guessing that past recessions just led to more layoffs or pay freezes than anything. This one is damn deep and severe, yet many companies seem convinced they'll make it out okay. The HR folks I know (about six or seven personal friends, so not exactly a good sample size) say they don't want to have to go through the hassle of hiring a bunch of new staff once it does, so they're doing furloughs and the like to help prevent mass layoffs and stay afloat. Time will tell how well that works for them.
As far as Taibbi's Goldman piece, I read the whole RS piece in print, with great anticipation since I work in the industry and love his past work.
I also noticed a lack of any real, verifiable, hard evidence. I realize it wasn't a term paper, but just pointing out connections and making assertions does not equal evidence. There's simply too many large, damaging assertions made in the piece without a whole heck of a lot of substance to back it up.
That's not to say GS is free of all charges, or that they're just a bunch of swell folks (trust me, they're not). It's just that Taibbi has more work to do to convince others -- it read more like a piece about how the Masons run the world than his usually solid work. Very disappointing.
MarkD: "The HR folks I know
MarkD: "The HR folks I know (about six or seven personal friends, so not exactly a good sample size) say they don't want to have to go through the hassle of hiring a bunch of new staff once it does, so they're doing furloughs and the like to help prevent mass layoffs and stay afloat."
If true then that's actually a good thing. While it sucks to get "furloughed", it beats being unemployed. It's also preferable in some ways to pay cuts and other givebacks. If business picks up then they'll have to stop furloughing and folks will be back to their old compensation levels, whereas the pay level may take a long time to come back.
Do you think that some American businesses have actually become smart enough to realize that laying people off at the drop of a hat is a bad idea, because you loose good people and you'll have to rehire when business picks up and have the new hires go up the learning curve? Sounds mighty optimistic, but it would be nice.
Of course there is also the question of whether businesses are using furloughs and givebacks because it's financially necessary or at least prudent, or whether the Great Recession is just giving them an excuse to get greedy.
My industry is way ahead of
My industry is way ahead of you, MarkD. They now expect extreme booms and busts; so they hire between 50%-85% of their staff as non-permanent independent contractors. They spend most of their time at work hustling to get the next contract.
Progress!
My significant other works
My significant other works for a Fortune 100 company and all are required to take one week furlough each quarter until at least next year. However, there have been very few layoffs. Furlough days cannot be taken as vacation, but some parts of the company require that personnel "disconnect" during that time -- no computers, no blackberries -- which isn't always possible, even during a vacation. Some people have come to appreciate the break. Some parts of the company that are more tied to supply chain or manufacturing, take it in half days once a week. Most people use the time to get caught up on errands, take their child to the dentist, etc.
Given the choice, I'll take furlough over layoffs anyday. It's not great, and no one likes to lose income, but it's a recession. That such decisions are being made should come as no surprise or shock. That we suffer a little bit doesn't strike me as the worst thing in the world -- I know very well that things could be much, much worse.
lots of cuts
Kevin, Not only did my 403(B) company contribution disappear (and I had to wait 7 years before I got it!!), but I also got a pay cut AND we have to make larger contributions (much larger) to our medical coverage AND they cut the amount of time we can acrue vacation time by two weeks. You can be sure that even when things get better, we won't get all our benefits back.
Excellent point, Inkblot's Aunt!
"You can be sure that even when things get better, we won't get all our benefits back."
You know, that's something I've never read, heard or seen anywhere, but that definitely needs to be brought to the fore -- the fact that, given companies' track records with these things, odds are they'll use the downturn to decrease wages, benefits, etc., while increasing their margins. They'll then say, "Look! We're doing great now!" while telling their associates, "So sorry, we're not out of the woods yet!"
Wonder how often that will occur once this thing ends. Hmmmm ...
As one of the laid off...
The company I once called home took advantage of this crisis to trim the long time employees with the higher compensation. With layoffs, then early "retirement" options, then more layoffs. All were aimed at clearing out the people who grew the company and therefore had watched their compensation grow along with them.
At my firm we were all aware of our total cost to the company each year, as it was part of our annual review. And with insurance, 401k, PTO, ESOP, and all the rest of the alphabet soup is was a rather hefty amount. I will never see it's like at a new job. And my replacement when they finally hire one will only cost a quarter of that at most. And will have none of my 35 years experience to take to the game...
You ain't seen nothing yet.
You ain't seen nothing yet. Free trade and globalization mean enormous pressure to bring worldwide wages into equilibrium, and the worldwide average salary is about $5,000 per year. Jobs will continue to move to low-wage countries like India and China and to low-wage immigrants and even lower wage illegal aliens. US wages have an enormous way to fall before they are competitive globally. We've done the easy stuff like massive public and private borrowing to maintain our standard of living, getting rid of traditional pensions, and eliminating health care in many small businesses. These things are easy because repayment, retirement, and illness we perceive as things off in the future. Now we're going to have to start dipping into wages.
I think there are ways to reverse the economic slide in the US, but we're so set in going in the wrong direction, like a self-destructive drunk who gets on an expressway from an exit ramp, the trend is probably irreversible.
This is nothing but
This is nothing but poppycock. Obama assured us that his stimulus would save and add 600,000 jobs by the end of the summer.
Did someone say poppycock?
Did someone say poppycock?
Forward into the past!
As a free-lance journalist, a.k.a. "independent contractor," I've been going backward all year. One of the magazines I work for dramatically reduced its frequency of publication, which cost me a couple thou'. Then another whipped a 10 percent pay cut on both staff and contractors, which took me down another peg.
I'm still working, and so is my wife, but we're not stimulating anybody's economy. We don't go out to eat, we buy our groceries from Vitamin Cottage/Natural Grocers instead of Whole Foods, and I won't be buying that nifty new Mac anytime soon, since I'm doing less work with the old one.
We're not in danger of living on the street anytime soon, but every time a nervous publisher farts it sounds like a firing squad to me.
Taibbi Redux
I have to say that when I read this post about the Taibbi article, I assumed that Kevin was wrong. But that was because I hadn't actually read the Rolling Stone article yet. I had heard Taibbi interviewed about the article and in those interviews he seemed to have more tangible evidence. For example, I recall him offering the stat that GS was involved in 1 out of every 5 IPOs at the height of the dotcom bubble. If true, that would certainly constitute a disproportionate role in the docom bubble. He proffered similar stats for the housing bubble and the spike in gas prices. The RS article, however, was strangely devoid of that corroborating evidence. Having now read the RS article I totally agree with Kevin on this one. It was a very poorly written and almost completely unsourced diatribe on the part of Taibbi. I definitely agree with Taibbi's world view vis a vis the self anointed financial masters of the universe. What's disappointing about this widely hailed article is that, while I believe there is a mountain of evidence to support Taibbi's broader thesis, he very oddly ignored all of it.
Beyond this critique of this specific Taibbi article, I think there is a broader consideration. These sorts of articles, especially to the degree that they are widely cited on the left, undermine more legitimate and substantive critiques of what is so profoundly wrong with the conventional economic wisdom that totally warps and distorts the political discourse in this country. There is literally a mountain of evidence that casts, at a minimum, a huge and very dark cloud of suspicion of GS. GS has always, and very conveniently, been able to avoid any serious scrutiny. And, despite the conspicuous lack of any public oversight of it's practices, GS has been a consistent beneficiary of the largest public bailouts in the history of the world.
The results of our relentless adherence to conservative economic dogma have been completely disastrous. The side opposed to the complete abdication of our economic system to the blood sucking leaches that infest the ranks of the financial class can't repeat that basic assertion enough. The actual facts make our case overwhelmingly. There is no need to embellish. There is no need to be kind to our foes out of some sense of decorum.
Taibbi had a forum to present a well sourced, fact based, indictment of a big pillar of the conservative economic platform. For reasons that I cannot explain, he chose to squander that opportunity, and, instead, offer a critique barely worthy of a high school debate club member.
Kevin, the most important
Kevin, the most important thing is that this is how much of the investment community behaves, not whether G-S is the epicenter of it all. Mostly, Matt takes on bad big boys and deserves our support.
Taibbi's complete article
tagged as:- solution
Kevin -
There is an OCR'd copy of the complete (purported, at least) Taibbi article here:
http://forums.somethingawful.com/showthread.php?threadid=3159732&pagenum...
I, too, read the online version and thought it somewhat disjointed. But I also picked up on the fact that it was abridged. There's a bit more meat to this one. Whether it will change yours or anyone else's mind about the quality of Taibbi's reportage, beat's me.
Recession data point: "independent contractor" that's seen my hourly wage drop 25% this year. This is on top of an approximately 50% cut in available hours. Now it's all just a matter of making the monthly fixed costs that let me keep possession of my house.
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